PRIVATE LOANS:
To PLAy or Not to PLAy
Disclaimer
The information contained in this presentation is not
comprehensive, is subject to change based on
additional guidance or directives from the U.S.
Department of Education (ED). It serves only as
general, background information for further
investigation and study related to the subject matter.
Nothing in this presentation constitutes or is designed
to constitute legal advice.
Today’s Agenda
• Legislative History & Overview
• Lender List Options Overview
• Preferred Lender Arrangements (PLA)
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Overview
Education Loans and Disclosures
Annual Report
Preferred Lender Lists
• School Lender List Options
– Selection Criteria
– Lender List Options Review & Discussion
Higher Education Opportunity
Act (HEOA) Background
HEOA Legislative History
• Date of enactment was August 14, 2008
• HEOA legislation amended Higher Education Act (HEA)
and the Truth in Lending Act (TILA) to require certain
private education loan disclosures
– DOE issued Final Rule October 28, 2009
– Federal Reserve Board issued Final Rule August 14, 2009
• Department issued DCL GEN-08-12
• Good faith effort to comply
• Effective date for DOE requirements – July 1, 2010
Regulatory Overview - HEOA
Key concern:
Many students obtain private education loans without first taking
advantage of less expensive options such as federal loans.
Key Intentions:
• Provide greater transparency.
• Improve the information provided to students regarding cost.
• Ensure students are aware of federal loan options.
• Encourage students to consult with their Financial Aid Office before
making education financing decisions to prevent over-borrowing.
• Ensure that schools who create a Preferred Lender Arrangements
(PLA) do so without prejudice and for the sole benefit of students
attending their school
– Ensure borrower choice of lender
– Selection based on the best interest of the borrower
Lender List
Options
Overview
School Options for Private Lender List
School options to communicate private loan information to
borrowers and families:
1. No lender list
No requirements (NOT considered a PLA)
2. List all lenders
Would NOT be considered a PLA
3. Third party list
may or may not be considered a PLA
4. Preferred lender list
would be considered a PLA
5. Find a new job – this one is “killing” me!
www.monster.com
NO Lender List
"Let the buyer beware"
Any recommendation of a lender (verbally, via website,
distributing lender collateral) that is not simply a neutral,
comprehensive list of lenders who have lent to students at the
school in the past is considered a PLA.
Comprehensive Lender List
NOT a PLA
• Schools can provide neutral, comprehensive list of
lenders from certain period of time (e.g., 3-5 years)
• Must provide clear statement that borrower can borrow
from any lender
• Must provide terms and conditions of loans offered by
lenders
• If schools leaves some lenders off, PLL requirements
triggered
– School can remove lenders who have left program
Any recommendation of a lender (verbally, via website,
distributing lender collateral) that is not simply a neutral,
comprehensive list of lenders who have lent to students at the
school in the past is considered a PLA.
Private Loan Disclosures
• Certain information required regardless of if a PLA exists
• If school (or school-affiliated organization) provides
information about private loans, it must—
– Include information required under §128(e)(1) of TILA
– Inform prospective borrower that (s)he may qualify for Title IV
loans
– Inform prospective borrower that the terms and conditions under
Title IV loans may be more favorable than the provisions of the
private education loan
• School must ensure private loan disclosure is distinct
from Title IV loan information
[§152(a)(1); §601.11]
Private Loan Disclosures
Third-Party Websites
“[Not a PLA] as long as the institution ensures that
the listing is broad in scope, does not endorse or
recommend any of the lenders on the list and
the lenders on the list do not pay the third party
entity to be placed on the list or pay the third
party entity a fee based on any loan volume
generated.”
Federal Register: October 28, 2009 (Volume 74, Number 207) – Final Rule
Third-Party Websites
• Sample listing of third-party websites:
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Financial Aid Administrator Associations
FinAid.org
Simple Tuition
Overture
Student Lending Analytics (SLA)
• School is responsible for compliance:
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Broad in scope?
Endorsing or recommending?
Lender payments or revenue sharing?
Disclosures provided?
Borrower and/or school eligibility with all lenders?
PREFERRED LENDER
ARRANGEMENT (PLA)
Preferred Lender Arrangement
Overview - Definition
As defined by HEA, a PLA exists if both of the following
conditions exist:
(1) A lender provides or issues education loans to students, or the
families of such students, attending a covered institution; and
(2) The covered institution or an institution-affiliated organization
recommends, promotes, or endorses the education loan
products of the lender
If both of those conditions are met, a PLA exists, whether or not the
covered institution and the lender entered into a formal agreement.
Any recommendation of a lender (verbally, via website,
distributing lender collateral) that is not simply a neutral,
comprehensive list of lenders who have lent to students at the
school in the past is considered a PLA.
[HEA §151(8); §601.2(b)]
Preferred Lender Arrangement
• Requirements do not apply to
– Direct loans
– PLUS loans made under auction pilot
– Private loans made by school if funds are from
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Institution or affiliated organization
Donor-directed contributions
Title VII or VIII of Public Service Health Act
State-funded financial aid programs
– If the loan can be forgiven for public service
[HEA §151(8); §601.2(b)]
Credit Not Considered a Preferred
Lender Arrangement
• Private loan is not extension of credit provided by
school if—
– Extension of credit is less than 90 days
– Extension of credit is one year or less and no interest charged
– It is an institutional payment plan
• Truth in Lending Act
– Some schools may be subject to Federal Reserve Board
Regulations Final Regs dated 8/14/09
– 12 CFR 226—Regulation Z
– TILA questions? Call FRB at 202-452-3667
[HEA §151(8); §601.2(b)]
Preferred Lender Arrangements
• Annual report to ED
– Detailed explanation of reason for PLA
– Include terms, conditions, and provisions that made the loan
beneficial to students
– Must be made available to public and students
[HEA §153(c)(2)(A); §601.20(a) & (b)]
PLA - Institutional Requirements
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Disclose and enforce code of conduct policy
Disclose method and criteria for lender selection including reason
that each lender was selected (i.e. favorable terms & conditions)
Provide borrowers at least two unaffiliated choices for private loans
Provide Truth in Lending Act (TILA) required loan disclosures
for each loan program listed*
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Lenders required to provide to school by April 1st
Interest rates, fees, charges, terms and conditions, cost examples, etc.
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Disclose to borrowers the maximum amount of (free or lower cost) federal
grant and loan aid available under Title IV
Disclosure statement on the list that loan requests will be processed from
any eligible lender the student selects and clearly state that borrowers have
the option to choose a lender not listed on your preferred lender list
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Provide annual report to the Department of Education*
*new requirements
[HEA §487(h); §601.10(d)(1),(2), (3), (4), & (5)]
School Options for
Private Loan List
To PLAy or not to PLAy?
Private Loan Selection Criteria
Lender Loan Programs Available
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Borrower and/or school eligibility
Competitive pricing, rates, fees or other terms and conditions
Borrower benefits/repayment incentives
Special uses
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Previous school charges outstanding
Application processing after the end of a semester
Less than ½ time or non-degree seeking programs
Computer purchase
Study abroad
Reputation & track record
Stability & longevity
Servicing
Default rate
Other borrower benefits
To PLAy or not to PLAy?
Private Loan Selection Criteria
Quality of Lender Customer Service & Support
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Dedicated marketing/service staff
Toll free number – single point of contact
User friendly web-based services offered
Level of automated processing offered
Technical support offered
Training offered
Default management
Other value-added services
To PLAy or not to PLAy?
Private Loan Selection Criteria
Institutional & Student Financial Aid Office Operational
Needs
– Guide and counsel students and their families efforts to achieve their
educational potential by removing financial barriers and simplifying
process
– Educate students and families through quality consumer information
• Up to date product information and comparisons to promote wise
choices
• Filter loan products that offer the best combination of value and service
– Regulatory compliance concerns and control (i.e. HEOA)
– Applications assistance & financial advising for borrowers
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Application/self-certification methods
Toll free number and user friendly website
Cosigner requirements
Borrower communications
To PLAy or not to PLAy?
Private Loan Selection Criteria
Institutional & Student Financial Aid Office Operational
Needs (Cont.)
– Loan certification process
• Methods (electronic, fax, paper)
• Delayed certification offered
– Disbursement options
• Funding methods (individual check, lender EFT, central disbursing
agent)
• Funding availability & scheduling to meet school preferences
• Requests for additional/reduced loan amounts & cancellations
• Refunds/return of funds
– Other institutional needs
General Evaluation of Your School
Lender List Options
Contact Information
Roger Eldridge – reldridge@glhec.org
877-280-1527
Questions?